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Shares of Marathon Oil Corp. (MRO - Analyst Report) hit a 52-week high of $36.68 on May 20. In fact, the Houston, Texas-based energy exploration and production firm has seen its stock price climb some 12% since the beginning of the year. This price appreciation can be attributed to its attractive reserve base and solid project pipeline.

Why the Bullishness?

Marathon Oil’s strong inventory of development projects (in liquid rich resource plays and other focus areas such as Indonesia, the Kurdistan Region of Iraq and Poland) provides for visible production growth over the coming years. We believe that management’s guidance for a 7–10% annual production growth rate for 2013 is on the conservative side.

Management has not been shy of divesting assets, particularly those that do not fit into the company’s long-term growth plan. During the last two years, Marathon Oil has sold approximately $1.3 billion worth of non-core oil and gas properties around the world, thereby freeing up capital to concentrate on its longer-term high-grade prospects.

Finally, Marathon Oil – which spun off its refining/sales business into a separate, independent and publicly traded company Marathon Petroleum Corp. (MPC - Analyst Report) in 2011 – remains in excellent financial health with net debt-to-capital ratio of 24%, which helps it to capitalize on investment opportunities with the option to make strategic acquisitions. Marathon Oil also pays a growing dividend that currently yields 1.9%.

However, we think the current valuation is fair and adequately reflects the partnership’s future growth prospects. Moreover, Marathon Oil will take some time to fully absorb the outcome of the spin-off of its downstream business, which is expected to further limit its ability to generate positive earnings surprises.

This accounts for Marathon Oil’s current Zacks Rank #3 (Hold), implying that it is expected to perform in line with the broader U.S. equity market over the next one to three months.

Stocks to Consider

With Marathon Oil shares trading at all-time highs, any upside from here may be limited. Meanwhile one can look at Natural Gas Services Group Inc. (NGS - Snapshot Report) and PowerSecure International Inc. (POWR - Snapshot Report) as attractive investments. These energy equipment suppliers – sporting a Zacks Rank #2 (Buy) – offer value and are worth accumulating at current levels.
 

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